BReakout?

by John Quiggin on January 25, 2013

I thought I would follow up on Chris’ post, from a position of even less expertise, but focusing more on the consequences of a referendum vote in favor of a British exit (BReakout?) from the EU. I’ll start by thinking about two polar cases.

One is the Norway/Switzerland model. Initially, the only thing that changes is that Britain gives up its political membership of the EU and institutions like the European Parliament, Council and so on. Otherwise things go on as before – Britain pays into the EU Budget, is bound by current EU regulations and subsequent changes, keeps its optouts on things like Schengen, at least initially, and maintains its current access to EU markets, free movement and so on. This seems to work well enough for Norway and Switzerland, but doesn’t seem likely to satisfy UKIP or Tory Eurosceptics. And, of course, it depends heavily on the goodwill of the EU. Britain could seek to negotiate further exemptions from EU rules, but, the EU could scale back the existing British optouts over time.

At the other extreme, Britain could unilaterally abrogate all the existing arrangements and start over from the position of, say, Russia – a major EU trading partner without any special rights or obligations other than those agreed on a case by case basis. Prima facie, that would include applicability of the standard third-country tariffs in each direction, non-tariff restrictions applicable to goods not compliant with EU (or, in the opposite direction, UK) regulations, standard visa requirements for travel, residence and work, controls on capital flows and so on. It seems clear that this would be damaging for the EU, and disastrous for the UK. Still, it also seems clear that this is what the Eurosceptics have in mind, though typically with a liberal dose of wishful thinking about how easy it will be to negotiate FTAs, visa-free travel etc.

Is there an intermediate path? I can’t immediately see one. Presumably, there is a notion that Britain would stay in while the terms of exit were negotiated. But that could last many years, and would effectively amount to the Norway/Switzerland situation in the interim.

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I think you’re absolutely on the money. The other thing to bear in mind is that the referendum will only take place if the Tories achieve majority government in 2015.

This looks unlikely from current polls; the only plausible way in which it could happen would be a significant economic recovery that cements Cameron’s position (Cameron is still far more personally popular than his party, so kicking him out would be electoral suicide), and hence weakens the Europhobic wing of the party. That would make the Norway option far more likely than the Russia option, as Cameron is pretty much a pro-business neoliberal rather than a foam-flecked bigot.

This whole thing is premised on a negotiation completing in 2015-2017. Cameron ducked the question about what happens if this negotiation doesn’t get completed in that timeframe. The hitch is that although Germany wants a treaty of the 27, it’s not clear that anybody else does. They may end up just kicking the can down the road,
or doing what they need without the annoying peripheral members like Cameron via Enhanced Cooperation.

It think that in the unlikely even that he gets reelected, Cameron will just keep stalling until he’s no longer PM and the while thing is somebody else’s problem

Despite the fact that UKIP’s recent electoral impact domestically has been modest to say the least, Cameron’s strategists have detected a threat in the vital swing constituencies which UKIP could impact negatively upon in terms of the Conservative vote.

The referendum announcement clearly points to Cameron attempting to snuff out UKIP in these constituencies and reaping the votes of the anti-European Bufton Tuftons in the local Governmental/mayoral elections of 2013 and 2014 with another eye on 2015. The additional benefit being that it also goes a significant way to gagging the right wing of his party.

Option 1 seems to be what most people are talking about but both Europhiles and Eurosceptics would think it is a bad idea – keeping our obligations to the EU, losing rights, and gaining no new advantages.

Some Eurosceptics would be happy with option 2 but there isn’t anybody saying how it would work or what the costs and benefits would be. UKIP actually claim to want an economic, but not political, union. I just can’t see how that would work apart from the scenario in option 1, because why would/should the EU let us find an intermediate way?

If we get near to the possibility of the referendum taking place then Eurosceptics might actually have to be clear on what they want to achieve and how they intend to do it. However I don’t think there will be a referendum as I can’t see the Tories winning the next election. At the moment the Tories are unpopular because of the economy, more poor people for their policies to hit, and this move looks like Cameron doesn’t expect the economy to improve so he’s playing to xenophobia. I have also heard it described as strong leadership but it seems incredibly weak to me, strong leadership would be saying we need to be in the EU and I will help negotiate an EU that is good for Britain and helps the Eurozone out of the crisis. But saying I’ll do this then hold a referendum just shows a lack of conviction and pandering to xenophobes.

I think Labour’s best strategy would be to highlight that these are the only two options and Cameron’s weakness. Though they would need to put forward some realistic reforms for the EU.

“Despite the fact that UKIP’s recent electoral impact domestically has been modest to say the least, Cameron’s strategists have detected a threat in the vital swing constituencies which UKIP could impact negatively upon in terms of the Conservative vote. “

Yes, that’s obviously why he’s doing it. Although 15% or so for (obviously current, that will change I’m sure) voting intentions at the next GE isn’t all that “modest”.

The big difference in the recent polls is that these are the sort of numbers about GE intentions, not just the euro-elections intentions of the past. At this time in the last electoral cycle UKIP GE numbers were more like 3 or 4%.

BTW, it wouldn’t surprise me at all if the first UKIP MPs elected (OK, let’s just assume for the moment that any are, ever) came from Labour’s heartland seats, one of the old industrial towns, rather than in the Tory south. There’s an awfully large vote out there for “anyone but the bastards we know about”.

“Some Eurosceptics would be happy with option 2 but there isn’t anybody saying how it would work or what the costs and benefits would be.”

From memory, there’s a small boost to GDP if the UK ends up getting treated like Russia (ie, WTO, most favoured nation etc) and a decent sized one if the UK goes on to adopt real free trade (yeah, I know, but one can hope).

BTW, the Swiss/Norwegian payments into the EU budget. Formally, they’re for access to the Single Market. So if you’ve not got access to it then payments aren’t due. And if you do have to pay into the budget then you get access to the Single Market (along with all the rules about the mobility of labour, capital, companies etc as well as goods and services).

Why does anyone believe that a UK referendum would result in a decision to leave the EU?
Assuming, as one surely must, that the leader of the government party (Conservative or Labour) says “Vote to stay in”, the game is as good as over. All but two UK referendums have gone the way of the leadership of the governing party,[1, 2] and those two were small-scale (Welsh devolution mark 1 and regional government for the north-east of England).
In these circumstances, it’s clear that the wisest strategy would be to pose a strong question in the referendum – “Do you want the UK to be part of the EU?”

[1]I know the first Scottish devolution referendum is often regarded as a “No”, though it was in fact a narrow “Yes”.
[2] The government leader of the day sought a “Yes” in the 1975 referendum.

it wouldn’t surprise me at all if the first UKIP MPs elected (OK, let’s just assume for the moment that any are, ever) came from Labour’s heartland seats, one of the old industrial towns

Ha ha ha. You don’t spend much time in the north, do you Tim? UKIP are disaffected extra-Tory Tories. Labour heartlands don’t vote Tory, whether they are called the Conservative or UKIP. If there’s a strong “anyone but the bastards we know about” vote, it’ll go to the BNP, not UKIP.

This whole thing is blind, irrational nonsense, far removed from reality. UKIP live in a cloud cuckoo land where they think the UK should get to have all the benefits from the EU, but none of the responsibilities.

“It seems clear that this would be damaging for the EU, and disastrous for the UK”

There are definitely scenarios in which Britain leaves the EU that could be disastrous. It’s not hard to imagine – new tariffs leading to a collapse in trade, rolling back of the free movement of people, and so on. I haven’t heard any really compelling scenarios in which life would be better.

I’m a bit worried that that the EU withdrawal option might be suffering from association with the kind of people who typically promote the idea – Nigel Farage, Tory headbangers (Bill Cash! John Redwood! Assorted red-faced middle-aged nobodies from the 1990s! It’s a proper rogue’s gallery) and so on. I don’t like those people and I’d like to believe that anything they suggest must be stupid, but whilst I think that their motives are stupid, I can also recognise that, for instance, Norway is outside of the EU and seems on every level to be a better-run, more prosperous and generally nicer place than the UK on most measures. So, there’s at least some evidence that being outside the EU is not automatically disastrous for the country concerned.

The mantle of opposition to the EU has moved before – the original opponents to Common Market membership were on the left – and it’s not hard to imagine this happening again. If you think Osborne’s austerity is bad, what would you think if it was Draghi’s austerity instead, imposed on Chancellor Balls? If the hard money ordo-liberal faction retains control of European economic policy, can the left really support Britain’s continued membership of an organisation devoted to such policies? (Let’s remember that the eurozone/EU distinction is proving difficult to maintain, which is part of the reason for the current debate in Britain).

I suppose there’s a genuine pro-EU argument which says “yes, we should remain at the heart of the EU and advocate for change”, but I’m not sure how well that’s working out for Spain or Greece right now.

Why does anyone believe that a UK referendum would result in a decision to leave the EU?

Because I’d expect that anti-EU types would be disproportionately represented in the small minority of people who would bother to vote, and because the Murdoch press and the Daily Mail are consistently anti-EU.

Which reminds me – could this also be a gesture of rapprochement with Murdoch? Or is that too much Kremlinology?

This all seems pretty ridiculous. Is there really any chance that in 4 years’ time there is (a) going to be a referendum on this (b) they’re going to vote themselves out of Europe and (c) that will be that?
British (genuine) Eurosceptics appear (from having lived amongst them as an outsider) to be the equivalent of US Confederacy revivalists or the faction in Ireland who insist that we re-join the Commonwealth, immediately! No-one actually believes this nonsense, do they? I know they talk about it, incessantly, but I always assumed it was just to pass the time?

Because I’d expect that anti-EU types would be disproportionately represented in the small minority of people who would bother to vote

This isn’t the case. The anti-EU types are disproportionately represented in the small minority of people who express an opinion. You’d expect the beat up to the referendum to mobilise more normal people (the mobilised minority is by definition already mobilised), and all things being equal, the race to tighten during the campaign.

There are two hard core groups, not *that* different in size, and a lot of other people who don’t think about it much. About 6% of the population rate Europe in their top three issues.

Translation by Google:There are now three things happen: Cameron enforces its demands, and the British remain in the EU, without participating in their important projects. He or she passes through, and the British still vote ‘no’. Or he prevails not. No matter how it happens, the country is drifting further away from the core of the EU. Whether they are now formally at the extreme edge within the EU or outside the EU at the innermost edge – who cares?
In truth, the British have long been outside.

Another potential model of JQ’s option 2 variant is Turkey. A medium-sized economy on the edge of “Europe” with a thriving post-imperial metropolis but a grumpy hinterland and restive provinces on the edges. Because of size and historic linkages, the country can try to play a distinctive role going along with the bits of EU integration that suit it while seeking to use its own cards in relations with other countries outside the constraints of EU institutions. But at this stage Turkey seems to have far more upside on that path the UK — lots of convergence still to be done, and various ways to structure its relations with Arab countries and Central Asia to suit itself (e.g. favourable-bordering-on-mercantilist trade deals and energy supply lock-ups). But for the UK, where’s that other neighbourhood that it could deal it on more autonomous terms outside the EU? And how much of a growth bonanza is there from being outside History’s Greatest Policy Monster, the Working Time Directive?

Switzerland is not in the same position as Norway. Norway is in the EEA while Switzerland is only in EFTA (and Schengen, for free movement of people). I remember looking a few years ago and finding that Switzerland seemed to be pay a lot less per capita for membership of EFTA than EU states into the EU budget, although it was difficult to find comparable data.

Something I never quite worked out was the extent to which the domestic Swiss economy was regulated by EU law. Obviously, goods and services traded with the EU have to conform to EU regulations but what about internal trade or trade outside the EU.

The long-term thing he needs to do is to purge the party of it’s insane members – who, like the Tea Party end of the Republican spectrum think that they lost the election due to not being right wing enough, despite the evidence of the voting booths and opinion polls – or any sane consideration of the changing demographic since the last time they achieved a clear majority government.

i.e. the lingering fantasy that a Thatcher or Reagan will restore their fortunes, completely ignores their dying voting base. Cameron at least understands that – he equally understands there are plenty of economic conservative votes to be had amongst ‘minority’ groups, and equally plenty of social conservatives.

But I don’t think he has the backing to fully transform his party i.e. let those voters and votes go to UKIP, and the whole thing whither on the vine, like the far left has.

The problem is that’s far easier to while you’re not in power.

There’s also the fact that as soon as there is the prospect of a real ‘Yes’ vote, the corporate big guns are going to come out. They’re happy to let the UK’s right wing press stoke up it’s usual xenophobic guff, provided the outcome is a Tory government friendly to big business. Also people will often say a different thing in a consequence free survey that when they have to actually make a big decision.

Lastly, there’s the London question – because London isn’t like the Home Counties, but it’s where the economic growth that sustains the organic jam companies is coming from.

The EU desperatly needs further integration at the moment, which would be a lot easier if the UK just left. Maybe there would even be a chance to shut British finance out of the EU market and get good EU wide regulations of the financial industry.

Have you ever looked up the term “circular argument”. All you have done here is exclude all but the worst cases, and then conclude that we face one of the two worst cases.

Try reading some very elementary book on Economics. A High School text would be perfectly adequate. Trade is not a zero sum game. Trade benefits both the importer and the exporter. So both are highly motivated to find a relationship that promotes trade.

Try dropping the inferiority complex and stop talking about what the EU will “allow”. Merkel has already talked about coming to an agreement with the UK that satisfies both sides.

The holy Roman empire now,
How holds it still together?
-Faust, book 1

I’m curious if the UK could possibly leave the EU without creating a “bank run” mentality among other members. If this prompted Finland or anyone else to exit, this would give cover to the Greeks, Italians, Spaniards, and Irish to do the same, leaving France and Germany alone in their beloved double suicide. Breakup looks like a much better option than the current stranglehold which, let’s face it, is not going to be reversed by those in charge.

He doesn’t. He lives in the EU subsidised province of Portugal. A significant number of UKIPPERS (most?) live outside the UK, generally in countries that are net recipients of EU funds. They don’t live in Germany, Holland etc. They’re just elderly remittance men.

The Eurozone needs further integration, to deal with the imbalance between fiscal and monetary union. But there is no earthly reason why non-Eurozone countries need to be involved in this.

So Munchau isn’t wrong, although his perspective is weird: if the Eurozone becomes more integrated, then the UK will obviously be less integrated with the Eurozone countries than they are with each other. As it already is.

This is the point which people like Hix and Jon Livesey are missing, from either side. If we let things carry on as they are, that will be absolutely fine. Countries seeking greater integration can have it; meanwhile, the benefits to both sides of the UK retaining its current levels of integration strongly justify continuing it. In the absence of lunatic political grandstanding, everything that anyone sensible wants will just happen by default.

But if the UK votes to have a petty xenophobic wankathon and send the rest of Europe a telegram saying “fuck you all” (which is what a ‘no’ in an in-out referendum would be, even if the government were seeking to restrict the practical impact to Norway levels rather than suicide levels), then the mirrored petty xenophobia of the likes of Hix is quite likely to prevail on the other side, no matter what Mrs Merkel thinks.

“Governments will make decisions based on economic rationality at times when xenophobic nationalist sentiments are inflamed among the general populace” is, it’s fair to say, a poor forecasting maxim.

BTW, I’m pretty sure the Merkel quote was not about offering good terms post-exit. It was a (vague) expression of willingness to compromise with Cameron on the terms under which Britain would stay in. Like John B, I’d guess a post-exit UK would be somewhere behind Kazakhstan in the queue for favorable deals.

And I think hix is right insofar as a post-exit EU would be looking to fix its own financial market problems, and that stopping integration at Calais would make that easier.

A two speed EU is no solution. The status quo we have right now is one of negative integration. Every company can do business everywhere it likes while adhearing to local rules of any legal seat it likes. This has proofen particular disastrous with regards to financial companies and requires imidiate EU wide regulations that exceed the highest local standards currently in place within the EU.

Besides that huge problem, i dont see how the UK is even worth bothering to set up a two tier system with all the additional adminstrative and negotiation hassle. It does not seem the UK is even interested in anything but cheating other EU members with financial service exports. Why even bother with a rich long term liberal democracy that elects MEP who claim the EU sends data about the location of British nuclear submarines to Russia. The worst Hungarian right winger looks sane compared to that.

The risk of more serious conflict does not apear to get reduces either through integration since EU membership just seems to serve as a constant reminder for the UK that indead, they do not run a big empire anymore and are too weak to just force their culture onto the EU as they did with the colonies.

@Manta To restate, the reference was to ” applicability of the standard third-country tariffs in each direction, non-tariff restrictions applicable to goods not compliant with EU (or, in the opposite direction, UK) regulations, standard visa requirements for travel, residence and work, controls on capital flows and so on”

The easiest one to quantify is the end of free movement. There are around 1 million EU citizens in the UK and 1 million UK citizens in the EU. AFAICT most of them would not be eligible for work or residency under the rules applied by the EU and UK to (for example) Australians. If they were required to move (and the ability to exclude EU migrants is a central plank of the UKIP case), that would cause huge disruption in labour markets.

The impact on UK financial markets, seems likely to be even larger. As noted by hix above, this is an area where any post-exit moves by the EU are likely to be in the direction of imposing more barriers, not less. Exports of financial services to the EU are around 20 billion pounds a year, all of which would be at risk

The biggest consequence of a total British departure – remember that it is the second biggest NET absolute contributor to the EU budget – is the ensuing budget wars (uncertified by the Court of Auditors for 15 years I think. Why should I at age 63 pay high taxes to subsidise the pathetic Greek (& other) governments failure to raise taxes from wealthier middle-class greeks. And as for federalism you must all be deluded if you think France will share control of its Nuclear weapons with Germany and continuing the defence theme it is already Europe A La Carte with French troops (alone) in Mali. What hypocrisy! and as for Reverend Obama in his pulpit – consider what would happen if DC took great chunks of power from individual states.

“The easiest one to quantify is the end of free movement. There are around 1 million EU citizens in the UK and 1 million UK citizens in the EU. AFAICT most of them would not be eligible for work or residency under the rules applied by the EU and UK to (for example) Australians.”

And would be eligible under the rules as applied to Switzerland and Norway.

The weird kind of widespread anti German prejeduce that can be found in the UK is a local phenomena which cannot be found in any other former WWII enemy nations. Any conclusions from British attitudes towards French ones is thus misplaced. It is rather unlikely French objections to a common army will target Germany in particular whenever that might become a topic and i hope such an army will be one without nuclear arms or desire to play police man in former colonies. I am pretty sure i will not be alive then either.

Hix: you’re taking the monster raving loony fringe, and running with it. Colin Brewer is a ridiculous man. The thankfully-now-replaced former Czech president is a ridiculous man. Neither of these people speak for their countries, although Vaclav Klaus had a far stronger claim than any UKIP member ever has.

There are large numbers of EU nationals resident and working in the UK, and there are large number of British people living and working in EU countries. Depriving such people of their livelihood and residence would not be a move anyone would want to make.

British people already living and working in EU countries don’t need to be affected; they are, presumably, already registered there as residents and employees. It’s the new post-separation expats who are going to be affected. Same is probably true for Europeans in the UK: it seems unlikely that those who are already there would be expelled.

@Chris, at a hypothetical point that the UK is negotiating about an exit, why would we assume that the people at the table are trying to make the most of UK-EU relations? They would be the people who had won an election on a leave-the-EU platform, and then a referendum on top of that.

45: that assumes both sides of the discussion have some plausibility on their side. There is every plausibility that Brexit fans precisely want an exit in order to get EU citizens out of the UK. What is true though is that the rest of the EU will leave UK citizens alone, and that sums up the value on both sides of the discussion.

Could the path be along the lines of the dissolution of Czechoslovakia in 1992? The Czech Republic and Slovakia were arguably more enmeshed than the UK and the EU, and managed to separate in a fairly orderly fashion, with minimal disruption in the economic, political, legal, and international areas.

Tim @38 (and replies) The statement I made was specifically in response to a question about the Russia scenario, in which Britain unilaterally abrogates the EU treaties and starts from scratch.

A further point. Of the Norway/Switzerland alternatives, only Norway can be achieved at the stroke of a pen. Switzerland has negotiated dozens of different agreements over 20 years, but that was from a workable starting point – a non-EU UK would be scrambling to deal with a rupture in everything from migration to trade to police operations.

As regards Czechoslovakia, the separation was part of a complete transformation after 1989, which was, I think, fairly disruptive, even if highly beneficial on balance.

Basically, they want to be in the single market, but don’t want to comply with the rules for participating in the single market. All those European regulations they hate so much are the things that make the single market work – by harmonizing the regulations so people selling things don’t have 20-whatever different sets of possibly contradictory national regulations to comply with. How exactly do they think British goods will have access to the single market without complying with the damn rules? Unicorns and rainbows.

Yougov does surveys on attitudes to other countries such as Germany. Have you got any actual figures to back up your imputation of generalised racism? Did you just make this up because it seemed truthy and fitted your argument, or have you got numbers you just trickily decided not to disclose?

If this prompted Finland or anyone else to exit, this would give cover to the Greeks, Italians, Spaniards, and Irish to do the same, leaving France and Germany alone in their beloved double suicide.

I’d like to note that Finland is one of the most unlikely countries to exit the EU. For us, EU is not just an economic alliance but also our most important security arrangement. Without EU, we would be in Russians’ lap.

For us, EU is not just an economic alliance but also our most important security arrangement. Without EU, we would be in Russians’ lap.

I am slightly surprised by this, because the EU doesn’t have a mutual-security thing going on, and also because Finland has an explicit policy of staying out of such mutual-security things (hence their not being in NATO). But I am not an expert – can you say a bit more about this?

I think the ‘Russia’ scenario would actually fall somewhere between the two extremes (more like a ‘Turkey’ scenario in practice, without the charade of membership negotiations). In the short term, the UK won’t be able to get as good a deal as Switzerland, and both trade and relations with the EU will be damaged. But the UK has a long way to fall before it’s regarded with as much fear and suspicion as Russia is in the rest of Europe, and it’s much easier to sell the retention of free trade arrangements than to set them up in the first place. In the long run, and especially after the election of a Labour government that is not tainted by the EU exit, the UK could probably work its way back up to Switzerland status.

The big question for me is what will happen to free movement of people. I think the EU would be happy to let British citizens retain freedom of movement as long as reciprocal arrangements are in place. But if the British government gives in to the xenophobic press on immigration from Poland and so on, that could be very bad news for British citizens’ rights in the EU.